Private resource investment vehicle La Mancha Group initially held 31% of Evolution Mining (EVN) after selling its Australian assets to EVN in 2015. The most recent sale reduced La Mancha's holding to 9.56% on 26 July 2016, at A$2.84 per share.
The Evolution share price was holding comfortably above A$3.10, despite the weakness in the USD gold price as it retreated from US$1,300/oz to US$1,225/oz. The La Mancha sale has re-based the EVN share price, which we interpret as some perceived overhang from the remaining holding.
June quarter production report
Gold production for the June quarter was 201,254 ounces at an All-In-Sustaining Cost (AISC) of A$846/oz. Operating mine cashflow was a record A$221.9m for the quarter, and net mine cashflow, after capital expenditure, was A$136.0m.
Evolution notes that stand-out operational performance was achieved at Ernest Henry with 24,202oz at an AISC of approx. A$823/oz (on the back of copper and silver co-product credits), at Mt Carlton with 26,708oz at the AISC of A$712/oz (also benefiting from co-product credits) and at the mature Mt Rawdon mine, with 31,244oz at an AISC of A$934/oz.
FY17/18 and the FY18/19 outlook
Gold production for the full year was 801,187 ounces at an AISC of A$797/oz. Mine operating cashflow was a record A$811.8m, and net mine cashflow – after capital expenditure and near-mine exploration – was also a record of A$539.9m. Guidance for FY18/19, from the six mines in the operational portfolio, is for production of 720,000-770,000 ounces of gold at a projected AISC of A$850-900/oz.
The resource and reserve base
Our valuation is dominated by the long-life Ernest Henry and Cowal assets, with the Resource base increasing to 14.24Moz and the Reserve base (to JORC code 2012 standards) to 7.05Moz. At current production rates the reserves would support over nine years of operation.
The guidance for the 2018/19 year, with minor changes to our commodity price and forex assumptions, slightly enhanced our sum-of-the-parts valuation, with our gold sector valuation a 10% premium to this. We have increased our share price target, reflecting the value using the spot gold price and exchange rate, coupled with a zero discount rate for a company producing from a portfolio of established mines (Morgans clients can login to view our valuations and share price target). EVN paid 6.5 cents per share in dividends in FY17/18.
We upgrade our recommendation from Hold to Add.
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Disclaimer(s): Analyst owns shares.
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